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BAE wary as fighter jet project hits turbulence

An F-35 Lightning II, the Joint Strike Fighter, takes off for its first flight as part of system development testing Dec. 15, 2006, in Fort Worth, Texas. Three variants of the aircraft are being developed for the Air Force, Marine Corps and Navy. (Lockheed Martin photo/Tom Harvey)

NASHUA - Gina McLaughlin, floor manager at one of the manufacturing labs at BAE Systems on Spit Brook Road in Nashua, is all business as she prepares to take a reporter into an inner sanctum of a high-security production area.

"No pencils, no cell phones, no cameras," she says as we don smocks and walk across a sticky floor surface designed to remove particles from the soles of our shoes. The security doors open near a row of workers focused on parts that will eventually find their way into the newest generation of fighter aircraft being built for the U.S. military and its allies as part of the biggest Pentagon project in history.

A product of the Joint Strike Fighter task force, the Lockheed-Martin F-35 Lightning II is intended to replace an aging fleet of fighter jets for the Air Force, Navy and Marines and the armed forces of at least eight other allied nations.

The goal is to create a fighter jet fleet with a common supply chain and communication systems for the U.S. services and America's allies, enhancing what is known as "interoperability," the ability of diverse systems and organizations to work together.

The stakes are high for New Hampshire's economy as the F-35 begins to move from research and testing into full-scale production. Since 2002, the program has brought $1 billion in development contracts to BAE in Nashua and Merrimack for electronic warfare systems, with initial, low-rate production just getting under way.

"From 2002 to today, we were focused on development. We expect to complete the majority of the development contract next year," said Deb Norton, program director for the F-35 at BAE offices on Spit Brook Road in Nashua. "We are working on delivering low-rate, initial production. But until you hit a milestone decision, you cannot transition to full-rate production."

It's not clear when that "milestone decision" will be reached, as Lockheed-Martin is under fire from the Pentagon for delays and cost overruns. Pentagon officials recently slammed the company and said they would "not bail out the program again if problems with the plane's cutting-edge pilot helmet and software were not resolved," according to a Sept. 17 report by Reuters news service.

As the prime contractor, Lockheed-Martin handles the final assembly and provides many major components. Its key partners are Northrop Grumman for communication systems, Pratt & Whitney for the main engine, and BAE for electronic warfare, flight control and fuel systems.

Withholding $46.5 million

The Pentagon announced on Oct. 25 that it is withholding $46.5 million from Lockheed, citing flaws in the business system used to track costs and schedules, and it has invited other companies to participate in a two-day forum on Nov. 14 and 15 to discuss possible opportunities to compete for work on the aircraft.

BAE management, employees and subcontractors in New Hampshire are watching carefully, hoping that the program stays on track and delivers on its economic promise.

"We will be attending the industry day on Nov. 14-15, but at this point, the artifacts being discussed at the event will not venture into the current work forecasted for BAE Systems in Nashua," said Kristin L. Gossel, director of external engagement at BAE Systems U.S. headquarters in Arlington, Va.

While BAE officials say they have been on time and on budget with their pieces of the puzzle, the same cannot be said for the project overall.

Pentagon officials and lawmakers are concerned about test-performance failures, delays and the project's ballooning cost.

The current estimates of $395.7 billion for eventual production of 2,443 planes for the United States represents a cost increase of 70 percent, adjusted for inflation, from the $233 billion projected when Lockheed-Martin won the program from Boeing in late 2001, according to Bloomberg News.

The extent to which the F-35 program will be a cash bonanza for the New Hampshire economy depends largely on how many of the aircraft are eventually ordered. If the program goes into full-rate production as planned, the effect on BAE in Nashua alone would be $1 billion in salaries in the next 20 years, from 2012 to 2032.

But cost concerns could lead to reduced orders for the aircraft, which would increase pricing for the remaining jets to be produced, putting even more pressure on volume, in what analysts call a "death spiral."

It's no surprise that such a massive program has been controversial from the start, Norton said. "It's the largest program in the Department of Defense," she said. "Large programs tend to get a lot of visibility, not just from the DOD but from congressional elements. All of our New Hampshire senators and representatives have supported the F-35 program, and we appreciate their efforts."

Favorable position

BAE, the largest supplier of electronic warfare systems in the world, is in a comfortable position no matter how the current tensions between Lockheed-Martin and the Pentagon are resolved. When Lockheed-Martin and Boeing were bidding for the project, both companies identified BAE as the chief partner for electronic attack, protection and support components on the aircraft.

The two key technical concerns raised by the Pentagon are not within BAE's jurisdiction - the helmet and the logistics and information system.

BAE subcontractors in the area say they are doing their best to ensure the project's success. At Technical Research and Manufacturing in Bedford, where work on the F-35 has brought in as much as 47 percent of the company's revenue in a year (see related story), Chief Operating Officer Mark Schappler is focused on cost controls for the radar system components TRM provides.

"We've been working with BAE to redesign the product to reduce the cost and make it more manufacturable in volume. We've been designing an improved version in anticipation of a full production ramp-up," he said. "We have our part of it, but as you know, there are lots of suppliers to the program. If everyone can focus on their own areas and take costs down, there's potential to gain more support for the program in Congress."

That support will be essential for the "ramp up" that Schappler and many others are waiting for. "We've taken everything we've learned over the years to make these improvements," he said. "For now, it's out of our control. All we can do is keep our fingers crossed."